Data & Research December 2, 2011

Report Examines Growth of Investment Options in DC Plans

Record-setting levels of defined contribution assets will continue to grow, yet mutual funds will not be the sole beneficiary.

 

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Celent, a financial research and consulting firm, examines the current retirement landscape in the U.S. in its report, “Developments in the Defined Contribution Market: New Funds and New Investment Vehicles in the U.S. Market.”

By the end of 2010, private defined contribution (DC) plans represented $4.5 trillion dollars in assets and a record high 25.8% of U.S. retirement assets (excluding Social Security). Celent says the marketplace can be categorized in several ways: by plan type (401ks, Keoghs etc.), by fund type (hybrid, target risk, target date) and by investment vehicle (separate accounts, mutual funds, collective investment trusts). The report highlights major changes for each of these categorizations.

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Historically, mutual funds have been the investment vehicle of choice in the DC market, with over 50% of assets held in mutual funds. However, over the past decade, new investment vehicles have continued to gain exposure in the DC market. These vehicles include: separate accounts, collective investment trusts, variable annuities and company stock. The report outlines the evolution and growth of these investment vehicles.

According to the report, the DC market is expected to continue to evolve and grow. Drivers of growth include: use of auto-enrollment, auto-escalation, concern among the mass affluent population that Social Security benefits will be cut and stronger adoption rates among younger generations.  

Other trends expected in the DC market include:

•  The top 10 record keepers will continue to win large plan sponsors and maintain their strong market share of the record keeping business.
•  Collective investment trusts (CITs) have grown from $400 billion in 2006 to $900 billion in 2010 in the DC market. By 2015, CITs are expected to grow to approximately $2 trillion within the DC market.
•  More conservative glide paths among target-date funds (TDFs) will cause lower payouts for plan participants.
•  More plan sponsors who are not currently using custom-designs will consider switching from off-the-shelf to custom-designed funds in the next couple of years.

“The defined contribution market is undergoing several developments. One of the most interesting is the growth of collective investment trusts,” said Alexander Camargo, Celent analyst and author of the report. “Even though these vehicles have been around for a long time, it’s as though plan sponsors are discovering some of their regulatory and cost benefits for the first time. 

Products December 2, 2011

William Blair Introducing Fund

William Blair Funds launched the William Blair Macro Allocation Fund on November 29.

 

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The Macro Allocation Fund seeks long-term total returns by allocating within and across major liquid asset classes and currencies (including developed, emerging and frontier equity markets, developed and emerging market debt, nominal and inflation-protected sovereign bonds, mortgage-backed securities, corporate bonds and other opportunities).

The fund will be managed by Brian Singer, Edwin Denson and Thomas Clarke, members of William Blair’s Dynamic Allocation Strategies Team, a group that has worked together for more than 13 years, beginning at Brinson Partners (now UBS, at Singer Partners and now at William Blair).

The fund employs a global macro asset allocation strategy. This strategy attempts to exploit periodic market inefficiencies by taking long and short positions in various asset classes (e.g., equity, fixed income and currencies) with a view to profit from relative movements across and within such asset classes.

As a total return fund, it is designed to augment a strategic allocation with a tactical, dynamic view of markets and currencies, the company says. The fund managers believe an allocation to this fund will position a strategic portfolio to benefit from temporary tactical market dislocations over the course of a market cycle.

For more information, visit the William Blair Macro Allocation Fund website.

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